How income taxes affect the economy, or don't.

Wondering about Initiative 1098? Worried that the well-heeled with flee Washington for income tax havens like Wyoming?

If so, the folks at Economic Opportunity Institute have a couple of intriguing data points for you that are worth examining. The first is an analysis by Steve Roth at the Asymptosis blog showing that there’s no correlation between state income tax rates and the presence of millionaires, which you can express like so:

The second is also a scatterplot correlation, this time by Mike Kimel at the Presimetrics blog showing that high top marginal tax rates are slightly but positively correlated with high rates of GDP growth in subsequent years. Like so:

Needless to say, none of this stuff is predictive. No one can say for sure how Washington’s richest 1 percent would respond to I-1098. But there does appear to be some decent statistical evidence to suggest that state income tax levels just don’t have much discernible effect.

Comments

Yan

October 16, 2010 at 10:04 pm

Are you kidding? Every states have their own advantages. Taxes is not all, but a big portion of it. Having both Holywood and Silicon Valley iside California does attract some millionaires there despite high taxes. However, we do not have Holywood or silicon valley here. Creating a new income without significant reductions on other taxes will demage our advantage. Don’t just look at static data. Look at dynamic data. Maryland and New Jersey are two states recently created the taxes on wealth. The results have been backfiring and terrible.

I’ve personally spoken with business owners who will leave the state or otherwise wouldn’t have moved here if there had been an income tax. Business owners who employ thousands of people. This will hit the state hard over time. California millionaires need an incentive to give up sunshine for rain.

Yes, I have read 1098 fully along with much of the propoganda the Union-backed pro-1098 campaign is spewing that stretches just about every fact in it, while hiding the facts that matter.1. State property tax reduction of 20%. That’s 5% of your total property tax (since State Tax is only 25% of your total property tax). This amounts to a whopping $180/household per year…don’t spend it all in one place.2. B tax CREDIT for small biz. Yes, for two years until the State Legislature needs more $ and reduces it with a simple majority vote.3. State tax threshold CAN be changed after 2 years by simple majority vote. They want you to think this isn’t going to happen. Look around. CT did the same exact “high earner” tax in 1991. Their threshold is now $13K. I don’t think even the pro-1098 folks could stretch the definition of “high earner” to start at $13K/yr.4. Guaranteed money for education and healthcare. Legislators have raided “designated” acoounts 74 times in the past decade. It is well known that there are no “sacred pools” of $. Yet the pro-1098 folks keep hammering this as a truth. It’s a complete un-truth. Forget the fact that even if these $ WERE spent on education and healthcare, there is ABSOLUTELY NOTHING that says the government needs to spend a single $ more than they did last year on these causes. They could simply spend the $ from the State Income tax for these causes and use the money they had been spending for other uses, giving no more funding than previous years to healthcare or education.I’m a huge supporter of both of healthcare and public education. I am for reform in both of these areas to ensure there’s accountability in spending so people get the most from their money. I’m NOT for a State Income tax that establishes whole new type of taxation and revenue stream for wasteful government spending with no provisions to ensure 1. the money is used for what it’s intended, and 2. it’s wisely used.It’s time for the 1098 supporters to wake up and recognize Initiative 1098 is a total sham and the people who are really behind this are the unions (they have donated more than half of the $6 Million to support this ridiculous thing), and people who are being bamboozled into thinking this is a good idea.

By the way, if you want to see the real truth of what happens in the long term when you add a State Income tax, see this analysis:http://online.wsj.com/article/SB10001424052748703882404575520241519315372.htmlIf Bill Gates is as passionate about getting money for schools and healthcare in WA as he claims to be, the simplest way for him to achieve this is for him to set up a trust fund, donate $ to fund it and then he can ensure the money is going to the right places and spent the right way.

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